Did Congressional wrangling over tax credit cause plunge in home resales?
Filed under: Economy
The National Association of Realtors (NAR) released their index of pending homes sales today, which shows a 7.7 percent slump -- almost double what economists expected. However, the news may appear worse than it actually is. During January and most of February, people held back from home purchase decisions waiting for Congress to make up its mind on a tax credit. At one point on the Senate side, the proposed tax credit for home purchases was as high as $15,000 for anyone. Ultimately, the negotiated settlement was for an $8,000 tax credit for first-time buyers. But those shenanigans likely kept people on the sidelines waiting for the dust to settle.
Walter Molony, spokesman for the National Association of Realtors, told me in an interview he agreed with this conclusion. "We think that many people may have put contracts on hold waiting to see what the tax credit will be," he said.
Fact is, if you sign a contract before the start date for a tax credit, you will out of luck on using that tax credit. So who wants to risk that much money just to rush in and buy a house if they can wait a month or two and get $7,500 to $15,000 back in tax credits? Not many people are going to skip that much savings.
Molony does believe the bill that did pass will "encourage new buyers to get into the market, but that could take several months to show up in the index." He explained that most people take about six weeks to find a home and make an offer and then it could be as long as two months to close that sale.
The good news is that the NAR's affordability index jumped to 166.8 in January, which is the highest level since records began in 1970. As I wrote last week, we finally seem to be moving to a point where buying looks better than renting in some of the hardest hit markets. As markets shift to that position, we probably will see many people who have been sitting on the sidelines back in the market.
"Even with many serious potential home buyers on the sidelines waiting for passage of the stimulus bill, job losses and weak consumer confidence were a natural drag on home sales," Lawrence Yun, chief economist for NAR said in a statement. "We expect similarly soft home sales in the near term, but buyers are expected to respond to much improved affordability conditions and from the $8,000 first-time buyer tax credit."
Yun added, "Conditions have been aligning very favorably for home buyers with the exception of consumer confidence. But I am hopeful that sales will turn around by late spring and early summer because history suggests that home sales can rise even in times of job losses when housing affordability rises."
Lita Epstein has written more than 25 books including "The 250 Questions You Should Ask About Buying a Foreclosure."
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Reader Comments (Page 1 of 1)
3-03-2009 @ 4:11PM
frank ceizyk said...
The congressional wrangling had nothing to do with the sharp downturn--talk to prospective homebuyers (which I do every day as a mortgage broker) and they are all holding out for the much publicized 4.5% WSJ guestimated mortgage rate target, and also waiting to find out if their jobs will be intact as the economy suffers the worst unemployment rate in decades. Add that to the fact that the media has hammered home how year over year house values dropped 18%, I find it laughable that "political wrangling" over an $8000 tax credit in what you attribute the drop in resales to! Educate yourself before writing garbage like this...
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3-03-2009 @ 4:14PM
Lita Epstein said...
Frank,
Since I talked with the National Association of Realtors and they confirmed that people held contracts waiting to find out about the tax credit, I don't see how you can call this garbage and uniformed unless you think the NAR also doesn't know what's it's talking about.
Lita
3-12-2009 @ 10:19PM
rob said...
THE GO HOUSING PLAN
The Geitner/Obama Plan or Simply GO
Dear, President Obama,
My name is Rob Rowsey and I am a proud concerned American who would like to propose a plan that I think will in both help correct some of the housing issues and stimulate the economy. I feel that the house fiasco in the last eight years is what has our county and the economy weighted down and until this anchor of poor decisions and financial irresponsibility both by the consumer and the financial institutions is corrected no dollar amount will stimulate this economy. I understand why we have to do right now by giving money to keep the financial institutions that are on the brink of failing in some situations afloat. I thought of a plan that I wanted to run by you that I think could have some merit.
First: all mortgages that were taken out in the last 8 years should be adjusted to traditional mortgages of 15 to 30 years. Second: the houses that were purchased in the last 8 years will have their inflated values adjusted to current economic levels and the mortgage amounts will be adjusted to that rate. Third: Loan percentage rates on these homes will be adjusted to 1-3% with the rates being automatically adjusted by the banks without refinancing charges. Forth: In keeping things fair for all the Americans who did not make poor financial decisions and who are currently in a traditional mortgage. Those in this category would have their current interest rate dropped by 2% automatically without refinancing cost.
This stimulus package would be costly yes, but no more costly than giving Trillions of dollars to financial institutions without really stimulating anything. It is not going to help in the long haul by giving financial institutions money in the hope that they are going to “open up credit” to individuals who in tern have no credit or money to pay back a loan that the would be receiving. On the contrary by getting this housing economy which is a much more “real” economy than the stock market economy back on track and get money back into the hands of hard working Americans will cause true stimulation. Housing is a much more real economy because it is what is happening today, right now. Americans need to know that they will have a place to lay their heads and to build their dreams of the future and the future lies in the stock market economy where dreams of a good retirement or money to send children to college. If Americans can feel that the government is not just giving money away to industry and financial institutions, but is truly concerned in helping Americans stay in their homes will have a much bigger impact on this road to economic recovery.
I know that money is needed right now and I agree with all that is being done up their in Washington and I salute your efforts, but I know if housing is not taken care of with some sort of package that is truly felt by all Americans then all the monies in the world will not help.
If thinking truly long term about what is going to be lost by the financial institutions if foreclosure after foreclosure continues to happen. Many of these foreclosures having second and third leans on them that the institutions will not recover and property values on good loans will continue to drop because of the foreclosed homes that are abandoned and not taken care of will cause this spiraling of despair to continue. If this situation is stabilized a major crisis in the economy will start to recuperate.
Thank you for your time.
Sincerely,
Rob Rowsey
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